Buying a used car: What are my payment options?

The research has paid off, you’ve found a car and even had it professionally inspected. But now comes the time to pay for your next car. However, what are your options? After all, the purchase of any car represents a significant financial undertaking and while a few years ago your options were quite limited, these days there are plenty of ways for you to pay for your next car. It’s all about finding the best solution for you.

There are a number of avenues you can take in order to pay. You may have built up savings beforehand or, if you need a car quickly, you might be thinking of finance. Here, we’re going to take a look through your key financing options and the positives and negatives that they bring.

Buying a used car with cash

Cash is one of the most traditional ways to pay for a used car. It allows you to own your next vehicle immediately and ensures that you won’t be paying any monthly instalments as you will for finance. You might’ve sold a car or been saving up for a little while in order to pay cash for your next car.

What are the downsides of paying with cash? Well, you’re tying up quite a bit of your savings into one purchase - when you could be using them elsewhere - while you might’ve wanted to keep some cash aside for emergency use. Make sure you’re not putting yourself in a tight financial position by paying with cash. Also, remember that with many cars you’re unlikely to get the same amount back when you come to sell as you paid at the start.

Buying a used car with a bank loan

If you don’t fancy going down the cash route, then you might want to take out a traditional bank loan. With a personal (unsecured) loan, you’re able to purchase a car outright and then make steady monthly payments to pay off the balance. You may also want to borrow in order to make up a shortfall on a car.

The benefit of this route is that you’ll own the car outright from the start, though if you don’t make the monthly payments there’s the chance that the vehicle could be repossessed. Remember, too, that banks will issue a credit check on any loan application and, if your score isn’t the best, you may not be eligible for the best deals and rates. Higher interest rates could force the cost of this payment up considerably, too.

Buying a used car with a credit card

A credit card is a popular option for buying all sorts of day-to-day items, though it’s a less common option when it comes to car purchasing. You’d need to make sure that you’ve got the right type of card; you’ll need a credit limit which is high enough that it’ll cover the entire cost of the car, but the biggest factor here is the interest charges.

You could use a 0% purchase car, or spread repayments across an initial interest-free period and clear the balance before any interest comes into play. There’s also the option of using a cashback or rewards card, or a 0% balance transfer to pay off the full amount. Many used car dealers accept credit cards but make sure you check beforehand to avoid disappointment.

Buying a used car on finance

Do none of the options we’ve discussed so far work for you? Well, there’s a method which is extremely popular at the moment - car finance. It can be a quick and easy way to get behind the wheel of your next car and can help to spread payments evenly across monthly instalments.

There are different types of car finance, however. One of the most popular is a personal contract purchase (PCP) agreement, which sees you pay a deposit before making monthly repayments over a period between 1 to 3 years. At the end of the agreement, you’ll give the car back to the supplier, upgrade it for a new one or make an optional final ‘balloon’ payment in order to own it.

Hire Purchase - or HP - is another go-to option for financing a car purchase. AA Car Finance can help you secure an HP finance deal, giving you the option of borrowing up to £25,000 towards the cost of your next car.

With HP finance from AA Cars, we’ll pay the dealer directly once you’ve finished the sale. From there, you’ll pay a fixed amount each month until the end of the agreement, meaning you’re getting full ownership in the process. To find out more about your eligibility for this package, why not try our easy-to-use eligibility checker?

Leasing a car

Buyers after another option might want to check out car leasing.

Leasing is a little like renting or hiring a car over a longer period and it’s usually available on brand-new cars. One of the most popular types of leasing is personal contract hire or PCH. Quite often service and maintenance packages are tied up into your monthly payments, making this a good option for drivers who want one all-round purchasing solution.

There are plenty of leasing packages to suit all types of budgets and, if you’d like to know more, then you can find out more about leasing here.

So there we have it. We’ve explored some of the key ways that you’ll be able to pay for your next car purchase. Take your time and look through the various options to find out which one works best for you and you’ll be taking the keys to your new car in no time!

Image courtesy of iStock.